Spotify rocks – but without a compulsory, public digital music license they are doomed

July 27th, 2009

Update: a good comment by TelecomTV (Ian Scales) – I especially love their addendum to Spotify's logo: "Not Licensed to Kill" – great summary.

Before I get into the meat of this post, let me say this, for the record: I really like Spotify, the official new darlingamong the many on-demand streaming and interactive music services that try to go to the legitimate route and make deals with the rights-holders, ie. the record labels and the music publishers.

I like the Founders, I like some of their investors, I like what they are saying and how they do things. I even like their logo. We have met several times in the past – and something tells me Daniel et al may been reading my books and this blog, as well… all good this far.

So please note: this is not at all an attempt to rain on Spotify's well-deserved parade or discourage their investors. I am writing this post because I want Spotify to live, grow and prosper, not because I want it to crash. My comments, below, are simply meant to serve as a not-so-gentle reminder for a simple fact that we should keep in mind: while Spotify may look (or rather, sound) pretty, right now, no matter how hard they try and how much money they will raise, they cannot possibly succeed within the current music industry ecosystem, and they – by themselves – cannot possibly change that ecosystem single-handedly.

The primary reason for this is that there is no public (i.e. compulsory) license that is available for these kinds of services; therefore Spotify (and anyone else that streams music on-demand) has zero leverage whatsoever in the rights negotiations – and therefore, the entire pricing and overall economic model – with the record companies and publishers. In other words, they simply have to pay whatever it takes. And they are, indeed. Without a public license in place, this kind of situation is pretty much a suicide mission.

In my humble opinion, the chances of Spotify surviving beyond next 24 months, in the current music industry framework (call it '1.4' maybe – since we are still a long way from the Music 2.0 models that I and many of my readers and 'followers' have been discussing for the last, ouch… decade) are similar to… well, the likelihood of having a cold day in hell.

If Spotify – as a possible embodiment of those Music 2.0 concepts – is to live than the entire SYSTEM must be changed – no less, no more. If you like Spotify than this, below, is what you must ask for.

Spotify (and most other legal music ventures like it) won't survive unless:

A public, open, fully standardized, compulsory,multi-territorial and collective digital music licenseis agreed upon and instituted by law or by collective, voluntary action, SOON. Voluntary action seems highly unlikely at this point given the seriously monopolistic structure of the music industry, and the stellar 'my way or the highway'- track record of most industry bodies.

Just like the existing Radio and TV / Broadcasting licenses, such a Digital Music License will need to be a license that conclusively and pan-territorially (i.e. pan-EU, pan-Asia, US, and then, worldwide) regulates the basic commercial terms for the use of the master recordings and the underlying compositions for anyone that may want to offer or provide music online, regardless of whether it's streaming or downloading – because this decidedly 'Web 1.0' distinction is simply wishful thinking, going forward – access means copy, today. ISPs, search engines, social networks, telecoms, operators and Internet portals need to be able to avail themselves of a standard, ready-to-go license, just like anyone that starts a terrestrial radio station can use an existing license to calculate their music costs, today.

Anyone that has had the misfortune of wanting to 'do the right thing' and license music for any 'new media' i.e. online venture will agree with me on this: the current music rights licensing situation is nothing short of ridiculous, and to many outsiders the process feels like a cut & paste rendition of various "Twilight Zone" episodes. The ineffective and convoluted way that digital music rights are still being dealt with today is a disgrace that keeps causing continuous train-wrecks for anyone that wants to enter the business (and cares to do it legally), and the continuing inability of the industry's 'leaders' to solve these issues flies in the face of the massively increased consumer demand for digital music in all shapes and forms, across the globe.

I know… you may be ask: ok, yes that's not good, but if we were to license more efficiently…where's the new money? Here is my response, and I've said it many times: the problem is not that the 'people formerly known as consumers' don't want to pay for music – they just don't want to pay in those ways that the industry is currently asking them to. This is not a problem of total copyright disregard by the consumers – it's just a tollbooth-strategy question: provide real value and get real value – that is the only future there is! Maybe.. do what Google does?

But so far, all the music industry lobbying groups (e.g. the RIAA, the BPI, and the IFPI) and their brilliant lawyers have done is to ask Billions of people to change rather than consider changing, themselves, so that maybe they can actually start serving those people. Why is anyone still paying attention to these people?

Begging for mercy: Spotify's unenviable routine.

As a consequence of these stone-age business practices that prevail in the music industry, Spotify has to essentially jump off the cliff every time they license a new song, and beg to do things legally 24/7/365, i.e. beg for licenses, from each label and each publisher or rights society, in each country, every couple of months, and for every tiny change they make in their business model. For unlike Youtube/Google, Spotify has ZERO real leverage – while the international music conglomerates and legal rights-holders (reminder: not the artists!) have TOTAL CONTROL – if the deal is not to their liking they can just refuse a license thereby rendering Spotify either instantly illegal (i.e. unlicensed) or have their users evaporate quicker than you can spell 'dead'. There is simply no way that anyone can negotiate a win-win deal in a situation like this – especially when your potential deal partners have such a long history of using pre-Internet laws a weapon to kill competition and innovation.

This legal vacuum has led to a bizarre situation where the major record labels (as well as many large independents and / or their industry associations) can basically ask for anything – they simply have the exclusive rights for these recordings, so it's their way or the highway. The same goes for the publishers, and as long as refusal to license is a sustainable option this won't change (remember when the phone companies did not have to share access to their networks with other providers…?)

And you can bet we are not just talking money here – we are talking about having to give equity to the (large?) labels, for the mere pleasure of being legal, and for being mercifully allowed to reinvent how music is being monetized. This has not changed since the days of my own streaming music widget company, Sonific – you can read all about what happened to us, here. I have been there, done that, and this industry is STILL at the same place: the music licensing system is simply dysfunctional and the markets will NOT self-regulate. Vivan Reding and the EU Commission: are you listening?

There will be no real solution for this problem until the monopolies that currently serve as the foundation of the music rights society system in most countries (not in the U.S. btw!) are done away with; until pan-European or global licensing can be achieved via a one-stop, digital, fluid and transparent service platform. And just to preempt the obvious responses on this: when I say that the monopolies need to go I am not at all saying that these societies need to go. Absolutely not. However, if you base your very existence on the practice of merely extracting value rather than adding value I don't see how you could possible expect to have a role to play in a digitally networked future, either. So, while the concept of licensing collectives are and will remain crucial, they cannot be very useful in the digital economy unless they are constantly adding value and become 100% open and transparent. Monopolies just don't fit in this concept – or do they?

Back to Spotify: because they are enormously successful and popular right now, and because of all the other players in this turf that have paved the way and are still in the running (Last.fm, iMeem etc), and because of all the other players that tried and gave up (Yahoo Music, Musicload, MSN Music) or are about to give up (Napster, Rhapsody, MSFT), we need to make this issue a public, political, cultural and wider business issue.

We need music to be licensed for the Internet just like we license it for radio, today: with a public, open, collective and standardized license that does away with the monopolies of permission that have held us back for a decade, already.

I guess really this is POLITICS now – even the European Commission has already stated that "The failed music industry business model is causing online piracy" – so if you like Spotify it's time for action (hey – there's another post – but here is a preview of my 2 cents)

Finally, let me borrow some authority here: "Change will not come if we wait for some other person or some other time. We are the ones we've been waiting for. We are the change that we seek" (President Barack Obama)